TOPIC: Assignment by retired attorney of accounts receivable
to another attorney.

DIGEST: A retired attorney may assign his or her accounts receivable to another
attorney so long as full disclosure is made to the clients and all relevant
ethical rules are followed by the assignor and the assignee.

CODE: DR 2-103, 2-104, 2-106, 2-107 and 4-101(C); EC 2-23.

QUESTION

May a retired attorney assign his or her accounts receivable to other lawyers?

OPINION

The inquirer has been practicing law for a number of years, but recently has
been plagued with numerous medical problems that caused him to retire from
the practice of law. The inquirer is still owed money by clients whom he represented
while in practice. The inquirer wishes to assign these accounts receivable
to other lawyers for consideration, and asks whether such an arrangement would
be ethical. For purposes of this discussion, the Committee assumes that all
of the accounts receivable have been fully earned, and that no additional legal
services must be performed for the former clients. Subject to the caveats set
forth below, the question is answered in the affirmative.

There is no per se ethical prohibition against a lawyer assigning his or her
accounts receivable to another person. See generally N.Y. State 154 (1936)
("an attorney may furnish information as to the nature and extent of services
rendered by him to clients for the purpose of aiding an assignee in the collection
of his accounts receivable, unless such disclosures include matters communicated
to the attorney in confidence") (cited with approval in ABA 320 (1968));
cf. N.Y. State 608 (1990) (if all other reasonable efforts short of litigation
have been undertaken and have been unsuccessful, an attorney may employ the
services of a collection agent to collect a legal fee). However, since accounts
receivable owed by clients to their lawyers are not entirely analogous to ordinary
business accounts receivable, care must be taken to ensure that all ethical
obligations are adhered to by the assignees. Some of the ethical concerns raised
by an assignment follow.

1. Reasonable Fees -- Regardless of whether an account receivable exists before
collecting on the assigned account, the assignees will have to satisfy themselves
that the fees they will be collecting were reasonable. This is because an attorney
must prove "that the compensation was fair and reasonable for the services
rendered and that the client had full knowledge of the nature and extent of
the services rendered him as to be capable of exercising a fair judgment as
to the reasonableness of the bill." Cooper v. Conklin, 197 A.D. 205, 208,
189 N.Y.S. 552 (2d Dep't 1921); see also DR 2-106 (prohibiting entering into
an agreement for, charging or collecting an illegal or excessive fee). The
obligation to ensure reasonableness passes to the assignee.

2. Confidences and Secrets of Clients -- In describing to the assignees the
nature of the services rendered to the former clients, care should be taken
not to disclose the confidences and secrets of those former clients. While
DR 4-101(C) provides that a lawyer may reveal "confidences or secrets
necessary to establish or collect the lawyer's fee . . .," only that information
necessary for collection of the fee should be disclosed. N.Y. City 1986-7;
N.Y. City 1986-8; N.Y. State 608 (1990).

3. Suing Client for Fee -- EC 2-23 provides that "a lawyer should be
zealous in his efforts to avoid controversies over fees with clients and should
attempt to resolve amicably any differences on the subject. A lawyer should
not sue a client for a fee unless necessary to prevent fraud or gross imposition
by the client." An attorney who assigns his accounts receivable to other
lawyers remains responsible to the former clients to ensure that all relevant
ethical rules are followed in the collection process. (Since the assignees
will be lawyers, they would, in any case, have an obligation to abide by the
ethical rules.) The assignment of the accounts to other lawyers does not mean
that such assignees will represent the client. n1 Therefore, before an assignment
is made, the assigning attorney should enter into an agreement with the assignees
that they will not sue the client without the assigning attorney's consent.

n1 Obviously, no change of representation of the client from the attorney
to the assignees could be effected without the consent of the clients.

In a somewhat analogous context, such an arrangement was approved by the ABA
Committee on Professional Ethics in ABA 302 (1968). That opinion dealt with
the ethics of financing plans for legal fees developed by bar associations
in which fees would be financed by a bank. The clients signed notes payable
to the bank. The question addressed was whether, by authorizing the bank to
collect the fee on his behalf, a lawyer gave up his right to determine if and
when to bring suit for its collection. The Committee determined that the plans
in issue avoided that problem because they all provided that the attorney had
the right to repurchase the loan before suit is brought. The Committee said:

This is a necessary provision, as it gives the attorney an effective means
of preventing such suit if he wishes and still protects the bank against loss.

On the other hand, if the services have been or are to be performed and there
is no reason why the fee should not be paid, the lawyer may refuse to repurchase
the loan and permit the bank to sue upon it. This is his right and in some
cases will no doubt be necessary.

ABA 320 (citation omitted). This Committee believes it would be advisable
for the assigning attorney and the assignees to work out a similar arrangement
to permit the assigning attorney to control over whether any of the former
clients are sued for non-payment of fees. The assigning attorney should retain
the right to determine, based on the existence and materiality of a dispute
over the amount of the fee, and the principles set forth in EC 2-23, whether
a fee litigation should be commenced with his client. n2

n2 We note in this regard Judiciary Law § 488, a descendant of New York's
champerty statute, which prohibits an attorney from, among other things, taking
an assignment of a debt "with the intent and for the purpose of bringing
an action thereon." Although the assignee is not prohibited from ultimately
bringing suit to collect the receivable, if a client is in arrears at the time
of the assignment, the assignee should be careful to provide sufficient notice
to the client and opportunity to cure. See, e.g., 1015 Gerard Realty Corp.
v. A & S Improv. Corp., 91 A.D.2d 927, 457 N.Y.S.2d 821 (1st Dep't 1983)
(lawyer who accepted an assignment of a mortgage in default did not violate § 488
because he afforded the debtor the opportunity to cure the defaults). The lawyers
accepting the assignments should be mindful of these principles.

4. Division of Fees -- DR 2-107 provides that lawyers may not divide fees
for legal services with other lawyers who are not their partners or associates
except under certain circumstances and with client consent. The assignment
of an attorney's accounts receivable to other lawyers does not constitute a
prohibited division of fees so long as the fees assigned have already been
fully earned by the assigning attorney. Cf. N.Y. State 608 (1990) ("fees
referred to agents for collection should already be fully earned so as to avoid
the pitfalls of fee splitting").

5. Disclosure to Clients -- Disclosure of the assignment to the former clients
is necessary so as to avoid confusion on the part of the clients. The clients
should be told to whom such assignments have been made and that the assignment
does not mean that the assignees are now somehow their lawyers. Care should
also be taken by the assignees not to give the clients the impression that
they are the clients' lawyers, and, of course, they should abide by the ethical
rules against solicitation. See DR 2-103; DR 2-104.

CONCLUSION

Subject to the foregoing caveats, the question is answered in the affirmative.